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The Chosen Race, as the name implies, is the race that is chosen, but not too much is revealed for what. It seems that they are chosen to be the superior race of Mudos, perhaps even the entire world of Oddworld. The chosen race was to be shown by the gods of Oddworld.
This, of course, has brought much controversy and conflict between the more intelligent and powerful races, mostly with the Mudokons and Glukkons. When the chosen race had been possibly revealed, which the Mudokon moon believed to show that the Mudokons were the chosen race, this sparked the Glukkons to use industrial power to make themselves superior in their way.
The Glukkons had moved away from all their culture, and had made sure to bring down the Mudokons the best they could, even going insane with it, to the point that they would enslave their race, make snacks of them, and even force their queen to make more of them in enslavement so that they sell the children into slavery for life. They had even built a mobile building for the Vykkers to block the sight of the Mudokon Moon.
The chosen race has not officially been said to be the Mudokons, but is implied, though the finding of the Gabbit moon seemed to raise eyebrows, as now the superior race could possibly be any race (or a multitude of them, since the moons did not seem to show which race is superior, though they could both be). Since this hasn't been fully explored, it leaves much opportunity in future titles.